I had drinks on Tuesday evening with a buddy of mine from my UBS days five years ago. He is now a managing director at a hedge fund. While we were enjoying wine and pizza appetizers at Palomino, another buddy of mine who is a freelance financial consultant came in with a very wealthy restauranteur. Hugs and handshakes and “a pleasure to meet yous” all around. Then, they were joined about 15 minutes later by three other guys who also manage a hedge fund that specializes in emerging restaurants. The point of this story is that while people like to do business with people they know and shop at companies where they have some sort of connection to another person, the same is true for finding startup capital.
The old adage for raising money is that investors invest in the team first and the product/service second. Therefore, if investors are primarily investing in people, then what they are really investing in are relationships built on trust. This is why entrepreneurs tend to raise money from friends and family first. Though it’s not easy, trust can be created from scratch. That said, if you’ve burned through all your immediate prospects with whom you have significant pre-existing relationships, you need to be prepared for the consequences: fundraising will take a long time.
As an entrepreneur looking to raise capital, the approach cannot be to simply sit back and email executive summaries blindly. An email, even a pitch, is not a trust building event. It’s really just a foot-in-the-door. The best entrepreneurs understand this difference and figure out ways to use it as a launching pad for relationship development.
If you’re serious about raising money, you need to be serious about developing relationships. Instead of emailing, attend events to meet people personally. After a pitch, follow-up religiously with contacts… why not invite them to coffee to find out more about what they do and who it would benefit them to know? You could possibly be the gateway and then they owe you a favor… a great position to be in!
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